This Old Thing? An Era of Cheap Clothing May Be Ending, Affecting Household Budgets for the US and Europe

Consumers have received a hidden discount which may be ending, potentially affecting spending on myriad other purchases, including technology.

For decades, western consumers enjoyed access to relatively inexpensive clothing, even though they may not have been aware of their good fortune.

With demand from Asia and other developing regions driving up the price of food and other commodities, consumers received a boon by receiving steep discounts, on a historical basis, in the price of clothing. However, prices have now started to rise again.

Given the overall stagnation of household incomes in the US and Europe, these increases may impact allocation of resources and purchase decisions that had previously favored technology - including the rise in more expensive smartphones and tablets. Rents and housing costs have also begun to rise, again squeezing western consumers where it hurts most, in the realm of Maslowvian necessities.

The new tech strategy emphasizing multiple task-specific devices may be stillborn as a result of these macroeconomic trends. Businesses and government tax revenues may all be impacted by these changes, to say nothing of quality of life for the consumers themselves. JL

Floyd Norris reports in the New York Times:

FOR decades, declining prices have helped American consumers spend less on one critical part of every family’s budget: clothing. But those days may be ending.

The government reported this week that consumer prices for apparel rose 0.6 percent in 2013. That is hardly rampant inflation, but it was the third consecutive year that apparel prices increased. Before 2011, those prices had risen in only two of the previous 13 years.

The long stretch of falling apparel prices was largely attributable to an era of cheap imports, as China emerged from economic isolation to become the world’s largest exporter. That emergence damaged the apparel industries in all major industrial countries, but it was a boon to living standards for consumers, who were left with more money for other purchases.

In 1987, apparel accounted for 5.4 percent of all personal consumption spending in the United States. By 2009, that figure was down to 3.1 percent. In 2012, the year for which data is available, the figure had recovered a little, to 3.2 percent.

The Era of Cheap Clothing May Be Ending

For much of the last two decades, apparel prices declined in the United States, as imports grew and cheap clothing and shoes flooded the country. But clothing prices have begun to rise, albeit by small amounts.

Change in consumer prices from Dec. 1986

Change in prices

since 1986:

+

120

%

+112

%

TOTAL C.P.I.

Total

+

100

+19

APPAREL

+

80

Men’s clothing

+17

Women’s clothing

+11

+

60

Boys’ clothing

+1

+

40

Girls’ clothing

–6

Apparel

Shoes

+29

+

20

0

’87

’90

’95

’00

’05

’10

’13

Annual change in consumer

prices of apparel

Difference between overall

inflation and that of apparel

+

6

%

2

percentage points

APPAREL

INFLATION

HIGHER

+

4

0

OVERALL

INFLATION

HIGHER

+

2

2

0

4

–

2

6

–

4

’87

’90

’95

’00

’05

’10

’13

’87

’90

’95

’00

’05

’10

’13

Apparel share of total personal

consumption expenditures

Chinese share of total U.S. goods imports

12-month total through date shown

6

%

20

%

5

15

4

10

3

2

5

1

0

0

’87

’90

’95

’00

’05

’10

’12

’87

’90

’95

’00

’05

’10

’13

Sources: Bureau of Labor Statistics, Census Bureau and Bureau of Economic Analysis, all via Haver Analytics

Note: Annual changes in consumer prices are before seasonal adjustments; long-term charts are based on seasonally adjusted figures.

What may have marked the end of the era came in 2010, when unfavorable weather reduced cotton production in all three of the world’s largest producers — China, India and the United States. India briefly banned exports, and prices began to rise. In early 2011, the price of cotton briefly reached $2.19 a pound, compared with less than 70 cents at the beginning of 2010.

The price of cotton was back under $1 by the end of 2011, but that move helped to push American apparel inflation to 4.6 percent in 2011, the highest figure since 1990 and well above the overall inflation rate of 3 percent. It was the first time since 1991 that apparel prices had risen more than the overall inflation rate.

The apparel inflation rate fell to 1.8 percent in 2012, a small amount over the inflation rate, and to 0.6 percent in 2013, well below the overall 1.5 percent rate.

This week’s report showed that apparel prices fell in December, as they always do during holiday sales. But the decline of 2.3 percent for the month was the smallest such dip in December in eight years — perhaps an indication that clothing retailers were more successful at avoiding deep discounts than they were in previous years. On a seasonally adjusted basis, the Bureau of Labor Statistics concluded, apparel prices were up 0.9 percent from November.

China remains a force for deflation in the world, but perhaps less than it was. With wages rising, it has lost some of its business in inexpensive apparel production to other countries, including Vietnam and Bangladesh. China provided a record 19.4 percent of American imports in the 12 months through November, but that figure is no longer rising at a rapid rate.

Over the last 27 years — since the end of 1986 — American apparel prices have risen only 17 percent. The weakest prices have been in children’s clothing, an area where (parental) buyers may be particularly price-sensitive. The figures indicate that boys’ clothing prices rose a scant 1 percent over the period, while girls’ clothing prices declined 6 percent. Men’s clothing prices rose more rapidly than women’s, but shoes, up 29 percent over the period, rose more rapidly than any category of clothing.